Trade is an important factor which would give impetus to a nation’s collective economic growth. Evidences in the history of trade and industry worldwide dating back to the 19th century (2003), when trade first became the engine for economic growth, would support this declaration. Statistics would also attest that the leading players in the importation and exportation of merchandise and commercial services worldwide like Japan, Germany, China, United States, United Kingdom & France ( 2005) are in fact, also the very same countries who are known for their prosperous economies. The Global Policy Forum (2003) gave a comparison of the years in between 1949-2002, which showed that since the 1970s, world exports have grown significantly more quickly than both world production and total economic output, suggesting that international trade is increasingly important. In an article by , he stated that between 1980 and 2002, world trade has more than tripled while world output has ‘only’ doubled. The rise in trade relative to output is common across countries and regions, although the relative growth in trade and output varies greatly (2004). The relationship between trade and world output in this context would reveal that while international trade increases, the volume of world output is being left behind. Put simply, there is growth in both the world output and the international trade, but on different amounts. This, as explained by (2000), was the result of a major increase in the degree of international specialization between countries. An increase in the degree of specialization, he further elaborates, would result in an increase in world trade even with no increase in world output ().
Together with the promotion of international trade as the main way to achieve economic growth, the collapse of the domestic production process ensued. Manufacturing companies resort to outsourcing, which lowers the cost of production in terms of labor and materials. Take the Mattel company as an example (1996). The raw materials for Barbie (plastic and hair) are procured from Taiwan and Japan. Assembly used to be done in those countries, as well as the Philippines. But due to lower costs in Indonesia, Malaysia, and China, assembly of the dolls were transferred there. The molds themselves come from the United States, as do additional paints used in decorating the dolls. Other than labor, China supplies only the cotton cloth used for the dolls’ dresses. The pattern of international trade has shifted, with outsourcing replacing the old vertically integrated mode of production in companies worldwide. Countries around the world are growing more and more dependent on international trade to provide them with the products and services, which they otherwise do not have or is very expensive in their country. This paradigm shift has changed the way companies worldwide do business, especially in the production process of manufacturing giants.
This growing dependency of the nations with each other is fast-becoming an inevitable thing. If countries worldwide were to suddenly cut off doing trade with each other, drastic changes will have to be endured by the world market. The Philippines is a heavy importer of consumer goods such as garments & furniture, industrial manufacture like electronics, machineries, & construction materials and resource-based commodities such as mineral and forest products. The country will have to do without them if such scenario happens. Local substitutes will take place of previously imported goods. Equally, say, the United States will have to do without the imported mineral fuels, machinery parts, vehicles, organic chemicals, and so on. Each nation’s government plays a vital part in the promotion and restriction of international trade within their territories, as they are entitled to it. Generally though, the World Trade Organization (WTO) deals with rules of trade between nations. The WTO facilitate most of the trading nations’ formulation and agreement of trade policies. But this has not always been the case. Trade was traditionally regulated through bilateral treaties between two nations (). The GATT only surfaced around the time of the Second World War and from then on, they have attempted to assist in regulating the structure of trade. Tariffs, or taxes on imported goods, are the most common subjects of the agreements between trading countries. The regulation of international trade, as noted by the Wikipedia online (n.d.), is done through the World Trade Organization at the global level, and through several other regional arrangements such as MERCOSUR in South America, NAFTA between the United States, Canada and Mexico, and the European Union between 25 independent states. Specifically, governments promote international trade through incentives given to traders, lower tariff rates for importers, passage of import and export laws that would benefit traders in general, etc. They restrict trade, on the other hand, by complex Customs formalities, high taxes for domestic importers so that they would choose local raw materials instead, etc.
Taking the matter of market and mixed economies, there are disadvantages to both which cannot be simply taken for granted. In a talk at the Normal University, compares the advantages and disadvantages of a market economy for developed and underdeveloped societies. He said that market economies (1) increase the efficiency of competing firms; (2) employees work harder in the fear of losing their jobs; (3) firms improve production process to lower costs and develop new products; (4) foreign investment pours in as they learn of new business opportunities in the country; (5) less bureaucracy costs as public entities are acquired by private firms and four other benefits.
He counters, however, that (1) investment priorities are distorted because they will go to what will earn most, and not what the people needs; (2) overproduction of goods, as employees who work doubly hard aren’t paid enough to purchase what they helped produce; (3) the rich become richer and the poor become poorer; (4) increased corruption and crime level; (5) periodic economic crises and ten other drawbacks. He further pointed out that one of the few questions now lies in if the market economy can do without the disadvantages. The answer would be no, as the drawbacks are the necessary evils entailed by the benefits of such an economy.
The benefits of a mixed economy are, as taken from a paragraph in an article of the Review of Social Economy entitled Homo Socio-Economicus: Foundational to Social Economics and the Social Economy (2005), “as to advantages, it allows considerable individual freedom of choice, and it encourages personal responsibility for one’s own need, thereby preserving a powerful incentive to produce.
As to disadvantages, by permitting a wide exercise of personal freedom of choice it runs the risk that individuals will use their financial resources unwisely–choosing to satisfy whims, fads, fancies, fashion, and to feed obsessions and addictions, at the expense of meeting needs and dependencies. Additionally, it opens the possibility that the strong will use the state not to help the weak but to enhance their own economic standing. The mixed economy remedy is viable only as long as (1) the market economy continues to produce in abundance the goods and services required to meet human physical need, (2) individuals use their freedom wisely, putting needs and dependencies ahead of wants and obsessions, and (3) the strong truly care about the weak.”
Credit:ivythesis.typepad.com
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